Florida Biomedical Center Looking to a New Conduit

bb032510deal-01-500px.jpg
bb032510deal-02-500px.jpg
bb032510deal-03-500px.jpg

BRADENTON, Fla. — A biomedical institute on Florida’s east coast is exploring replacing its planned conduit issuer in hopes of lowering the cost of selling $70 million of bonds to finance the construction of a research ­facility.

The nonprofit Vaccine and Gene Therapy Institute of Florida, a new division of Oregon Health and Science University, had planned to use the Southern Grove Community Development District as the conduit issuer for the transaction — a CDD created for this specific purpose and the first of its kind to be used this way in Florida.

Although the debt sold by CDDs traditionally is secured by land, the Southern Grove CDD exists only as a conduit to finance VGTI’s construction project. The original offering, to be privately placed, received a BBB-minus underlying rating from Standard & Poor’s.

The lower rating required an interest rate exception to be approved by the state, which also added various restrictions on the sale of the bonds.

The restrictions included limiting the minimum denominations of bonds to be sold to $100,000 to initial purchasers who would hold the bonds as a long-term investment. If the bonds were sold in the secondary market, they could only be resold to accredited investors in minimum denominations of $100,000.

In a letter to Florida officials in mid-February, Southern Grove’s underwriter, Prager, Sealy & Co., said it called more than 50 institutional investors and other broker-dealers but believed the restrictions imposed on the bond sale “had a negative effect on the marketability of the bonds.” The bonds were withdrawn from the market on Dec. 18.

State officials agreed to remove the restrictions on the sale of the bonds through the CDD. But in early March, the Port St. Lucie City Council unanimously voted to explore having the city — where the facility is to be built — act as VGTI’s conduit issuer, a move that could lower the interest rate on the bonds between 200 and 250 basis points, or about $1.5 million a year over the 30 year life of the bonds, according to a March 3 memo to the council from acting city manager Jerry Bentrott.

The memo did not state why the interest rate would be lower. Bentrott, the city’s finance director, and members of the finance team could not be reached for comment.

Although he could not provide specifics, VGTI chief operating officer Mark ­Williams said underwriters advised him that the deal could receive credit enhancement by having Port St. Lucie as the conduit issuer and that “could result in a significantly improved interest rate.”

Part of that could be the result of having a more experienced and established conduit issuer overseeing the bond sale, as opposed to the Southern Grove CDD, which would be a new credit in the market.

While many development districts in Florida are experiencing severe financial distress because of real estate market woes, and some are in default, Williams said there are varying opinions about whether that affected the outcome of the original bond deal.

“I think it’s generally the nature of financing projects these days,” Williams said.

And although Southern Grove received an initial investment grade rating of BBB-minus, many lower-rated credits still have difficulty selling debt at affordable prices in the current market without cost-effective credit enhancement such as bond ­insurance.

“I think it is our expectation that doing a bond issue with a different issuer there would be another look at the rating,” Williams said. “It’s a whole different bond issue, and an issuer going through a different statutory process.”

VGTI is an institute focused on immunological research and human clinical testing for cures to such virulent diseases as HIV, cancer, swine flu, and the West Nile virus. It received a $60 million start-up grant from Florida’s Innovation Incentive Program, which was considered a positive credit factor in the initial rating.

VGTI, which is operating in temporary quarters for now, joins a growing number of biomedical research firms in the Sunshine State as Florida officials focus on diversifying the economy to provide higher paying jobs and make it less dependent on the volatile tourist industry.

“I think the important point from our standpoint is that obviously our scientists are trying to find ways to enhance the human condition by improving the response of the human immune system,” Williams said.

“I realize that’s not a financing consideration, but the reason that this is obviously important, not just to us but the world, is that every dollar that remains available to be spent on promoting this kind of research in Port St. Lucie is another dollar that is being spent on research on finding cures for diseases like cancer and also on badly needed economic development of the city,” he said, referring to lower borrowing costs.

Williams said using the CDD to issue the bonds remains an option.

But if Port St. Lucie acts as the conduit issuer, Williams expects the city’s underwriter and bond counsel — RBC Capital Markets and Squire, Sanders & Dempsey LLP — to work on the deal.

Port St. Lucie’s general obligation rating is A-plus from Fitch Ratings, Aa3 from Moody’s Investors Service, and AA-minus from Standard & Poor’s. The city would not be responsible for payment of the bonds.

While a new offering has not been structured as yet, the use of Build America Bonds has been discussed, Williams said, noting that VGTI’s planned new building is shovel-ready.

“Right now we are working with the city to explore that [financing] option,” he said. “If for any reason that doesn’t work out, we will explore every other option available to us to build our facility as planned.”

For reprint and licensing requests for this article, click here.
Healthcare industry Florida
MORE FROM BOND BUYER